Sophia Learning
FIN 100 Principles of Finance
Unit 4 Milestone
1. Which of the following describes derivatives, rather than debt securities or equity securities?
They are often used to offset external risks like changes in commodity pricing.
2. What can a business that has too little working capital do to increase it? Increase cash on hand
3. What is one disadvantage of NPV as a capital budget method? Although the weighted average
cost of capital is commonly used as the discount rate, it is not a perfect input.
4. Venture capital bridge financing is appropriate for a company in what stage of development?
Growth
5. A company invests $40,000 in a project with the following net cash flows:
Year 1: $3,000
Year 2: $8,000
Year 3: $14,000
Year 4: $19,000
Year 5: $22,000
Year 6: $28,000
In what year does payback occur? Year 4
6. According to the residual dividend model, what takes priority over distributing dividends?
Financing planned projects
7. When managing its cash, a company should make use of float to __________.increase the
length of the disbursement cycle
8. What is the benefit to a company from a securities underwriter? They help companies to reduce
the risk associated with an IPO.
9. Which of the following is a disadvantage of venture capital? Venture capital investors may place
restrictions on company operations, such as setting salary caps.
10. Determine whether the following description is true of a capital lease, an operating lease,
neither or both.
"A commercial financing agreement wherein a company may purchase the leased asset at a
discount when the lease ends" Capital lease
11. An auto manufacturing company is preparing a capital budget and considering four long-term
investments. The net present value of each project is as follows:
Project A: 0.25
Project B: 0
Project C: -0.5
Project D: 1.5
In theory, which two projects should the company pursue? Projects A and D
12. Consider the following data from a company's 95-day operating cycle:
Payable days: 8
Receivable days: 25
Inventory days: 70
What is the cash conversion cycle for this company? 87
FIN 100 Principles of Finance
Unit 4 Milestone
1. Which of the following describes derivatives, rather than debt securities or equity securities?
They are often used to offset external risks like changes in commodity pricing.
2. What can a business that has too little working capital do to increase it? Increase cash on hand
3. What is one disadvantage of NPV as a capital budget method? Although the weighted average
cost of capital is commonly used as the discount rate, it is not a perfect input.
4. Venture capital bridge financing is appropriate for a company in what stage of development?
Growth
5. A company invests $40,000 in a project with the following net cash flows:
Year 1: $3,000
Year 2: $8,000
Year 3: $14,000
Year 4: $19,000
Year 5: $22,000
Year 6: $28,000
In what year does payback occur? Year 4
6. According to the residual dividend model, what takes priority over distributing dividends?
Financing planned projects
7. When managing its cash, a company should make use of float to __________.increase the
length of the disbursement cycle
8. What is the benefit to a company from a securities underwriter? They help companies to reduce
the risk associated with an IPO.
9. Which of the following is a disadvantage of venture capital? Venture capital investors may place
restrictions on company operations, such as setting salary caps.
10. Determine whether the following description is true of a capital lease, an operating lease,
neither or both.
"A commercial financing agreement wherein a company may purchase the leased asset at a
discount when the lease ends" Capital lease
11. An auto manufacturing company is preparing a capital budget and considering four long-term
investments. The net present value of each project is as follows:
Project A: 0.25
Project B: 0
Project C: -0.5
Project D: 1.5
In theory, which two projects should the company pursue? Projects A and D
12. Consider the following data from a company's 95-day operating cycle:
Payable days: 8
Receivable days: 25
Inventory days: 70
What is the cash conversion cycle for this company? 87
